Saturday, April 25, 2009

Weekend Update…

I hope all you new bull market Sky Pilots are having a terrific green shoot weekend, I am reading about more and more “bears” who are becoming convinced that we have turned a corner. Even Prudent Bear’s Doug Nolan is sounding bullish, of course he understands at least the devaluation that’s taking place and that any growth that may be occurring is not real. Frankly, I think he’s just flat out wrong. The economy has not turned, it has simply found enough footing to stop the free fall and to give people looking for a bullish case enough hope to grasp onto. This is what bear markets do, they suck in money to be destroyed.

And to Doug’s credit, he is correct that credit spreads have come in. They have come in, though, not because of a fundamentally sound economy, or that people’s creditworthiness has improved, or that the banks creditworthiness have improved… THEY HAVEN’T. What they have is the government’s full FIAT backing – for everything. That’s why I’m considering taking out a very large unsecured line of credit that is backed by the government to buy gold! LOL, NO, not really (someone will write me and ask…).

Heck, even with the second largest REIT now bankrupt, the AAA CMBX index is coming up in price:

I’d like to know who falls into the AAA REIT category when the second largest one is in bankruptcy… anyone? Moving down the food chain to BB, you can see that prices and thus spreads are still in the gutter:

But there’s no doubt that Friday’s action was bullish. Bullish enough that it has me questioning whether that was an actual ending diagonal or not. However, until prices break the prior high, that scenario is still in play, but admittedly looking less likely.

Friday saw the DOW gain 119 points, the S&P gained 1.7%, the NDX flew 2.2%, and the RUT zoomed 2.6%. IYR defied gravity again – gaining 5.3% and breaking to a new high. That action sent SRS to a 23.66 Seth close which just goes to show you what a horrid and wicked trading instrument these leveraged ETFs are. I must say, however, that it’s getting close to being time for it to go the other way, IYR has come very far, very fast and that does not match the underlying fundamentals.

Internally advancing issues outnumbered decliners by a 3 to 1 margin and 74% of the volume was advancing on the NYSE. The VIX declined .9 and closed just beneath 37.

Let’s look a little longer term this weekend and see where we are. The two indicators I primarily use to determine bull or bear market are still solidly bearish. I think attempting to call a new bull market is as foolish as calling a top with every rally during a real bull market – what’s to be gained from doing that? Why not let the charts tell you.

So, DOW theory dictates that BOTH the Transports and the Industrials make new highs together to confirm a bull market. While we have just lived through the most powerful 7 week rally in history, we have yet to get close to a new primary high in either.

There are also several methods of using moving average crosses… the one most popular is the 8/34 moving average cross on a WEEKLY chart (green = 8, blue = 34). Here are both the SPX and DOW 2 year weekly charts. Note that once these crossed back in December of ’07 they have not crossed again. Also note that the weekly fast stochastic is overbought and that there is a positive RSI divergence developing in this timeframe as this peak is lower than the last, but the RSI is higher than it was at that peak:

Now let’s zoom in at a 3 month weekly chart of the SPX so we can see the latest candles real well. It’s been seven weeks of rally, this week was only slightly down but not on the NDX or Transports which put in their seventh consecutive winning week. This week’s candle is a pretty clear hanging man, but again, it’s not in a perfect position at the very top, so we’ll see:

And here’s the DOW weekly, same thing, and actually the third/fourth hammer in a row. The bulls keep trying but are having a harder time making progress the past couple of weeks. Note that we’re basically where we were two weeks ago:

Here’s a zoomed in 60 minute chart of the SPX… still building a rounded bridge trestle. Note the overbought 60 minute stochastic again, the 30 and 10 are also overbought indicating that some selling is likely on Monday. Also, you can see the red ending diagonal, it is not doing what I would expect for that type of formation. Ending diagonals usually break hard and then proceed to retrace all the way to the base of the formation at a minimum. Obviously hasn’t happened so far, but still could unless we proceed higher and break last Friday’s high, in which case we need to be looking for another formation:

Here's the big picture bear market in percentages to date:

And here's a daily chart of the dollar futures, /DX, showing that we are on the verge of breaking beneath a triangle formation:

This Friday’s rally broke some key areas on the P&F charts, whipsawing the DOW and S&P back to bullish targets again after having just issued bearish ones:




Below are the NYSE and Nasdaq Advance/Decline lines plotted against their respective index. The red/black lines are the A/D lines and solid black is the index. It’s odd in that the NYSE has produced a substantial divergence with the A/D line on top of the index which is a bullish indication saying that the move is wider based than the price would indicate:

Now on the Nasdaq it’s the opposite, meaning that the rally is being led by a narrow base and is considered to be a bearish divergence. Very unusual to have them split in opposite directions like that, but the Nasdaq has been outperforming the rest of the market:

So, there are many signs of life in the charts… GREEN SHOOTS if you will. Or even if you won’t. I don’t care, just don’t Bogart those shoots! In all seriousness, it’s a confusing picture to be sure, but I want to make it clear that I am as fundamentally bearish as ever if not more so, but I do see the potential in the charts to run higher here still. How high? Well, the upper trendline is about 890 right now on the SPX. That’s possible. It’s also possible that we are done and that those weekly candles are, in fact, hanging men.

Hey, you have to give Obama credit… Maybe somebody laced my green shoots but is it me or does he look just like Neo who single handedly stopped the economy from plummeting into the abyss? Naw, can’t be…

At any rate, there are signs that the market can move lower… no new high on the SPX this week, a potential hanging man, overbought short term stochastics. Additionally the volume, choppy trading, and insider selling are looking like distribution is occurring. And the bond market is breaking beneath trend on the long end of the curve. TLT closed beneath 101 (Bernanke’s line in the sand) and beneath the 200dma for the first time since August of last year.

Then, on the other hand, there are signs that it could go higher, irrational behavior, Goldman manipulation, people smoking green shoots, government stimulus, government guarantees, government backed credit spreads coming in, government backed auto industry, government backed housing industry, government backed insurance industry, government on the verge of default (oops, that one belongs in the bear category).

Yes, it’s been a terrific 7 weeks of lucky but highly skillful manipulation, err… I mean rally. Did you hear that the IMF is going to sell their own bonds? Yes, indeed. Debt by the central bankers for the central bankers to enslave the world via a new super currency. I warned about that, repeatedly, and now it’s here.
N.Y. Times - I.M.F. in Advanced Stages of Plan to Sell Bonds for a New Loan Program

…The idea for the new lending program is to provide flexible credit lines to poorer countries that found themselves blindsided by the sudden inability to borrow in global capital markets.
Perhaps with a new highly leveraged super duper world currency backed by IMF bonds, we can all work away our interest and fee paying lives away for no purpose other than to produce a meaningless Sky Pilot stock market rally!

The Animals – Sky Pilot:

Bank Failure Friday – Four Banks and a Credit Union…

Just to keep everyone up to date on the bank failure count, we are now up to 29 banks which is more than all the bank failures in 2008. Friday also saw another Credit Union failure.

Regulators Shut Banks in Georgia, Michigan, California, Idaho

By Margaret Chadbourn and Ari Levy

April 24 (Bloomberg) -- Regulators seized banks in Georgia, Michigan, California and Idaho with total assets of $2.3 billion, bringing the tally of failures in the U.S. this year to 29, exceeding the total for all of 2008.

American Southern Bank of Kennesaw, Georgia; Michigan Heritage Bank in Farmington Hills; and First Bank of Beverly Hills in Calabasas, California, were shut by state agencies. First Bank of Idaho in Ketchum was closed by the Office of Thrift Supervision. The Federal Deposit Insurance Corp. was named receiver of all four.

The seizures will cost the FDIC’s insurance fund a total of $698.4 million, with more than half of that tied to the failure of the California bank. While banks in the other three states are being taken over by institutions in their regions, the FDIC couldn’t find a buyer for First Bank of Beverly Hills, forcing the regulator to assume the company’s $1.5 billion in assets.

Bank of North Georgia in Alpharetta, a unit of Synovus Financial Corp., is taking over American Southern’s insured deposits and its single office, which will open April 27. Michigan Heritage’s deposits are being assumed by closely held Level One Bank in Farmington Hills and its three branches will open next week. U.S. Bancorp in Minneapolis, the sixth-largest U.S. bank by deposits, takes control of First Bank of Idaho’s seven branches.

“Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage,” the FDIC said.

Surpassing 2008
The seizures pushed the tally of failed banks past the 25 reached last year. Foreclosure filings for March totaled 341,180, a record high, according to RealtyTrac, the California- based seller of default data. The economy has lost 5.1 million jobs since December 2007, and unemployment rose to 8.5 percent in March, the highest since 1983.

President Barack Obama said last week that his $787 billion economic stimulus package, plans to rescue banks and efforts to reduce home foreclosures are beginning to “generate signs of economic progress.” Still, he said there would be “pitfalls” ahead.

Bank of North Georgia will buy $55.6 million of American Southern’s deposits and $31.3 million of assets. The deal excludes about $48.7 million in brokered deposits. The FDIC will pay off $50 million of Michigan Heritage’s brokered deposits. Level One is acquiring $101.7 million in deposits and purchasing $46.1 million in assets.

FDIC Makes Payments
For First Bank of Beverly Hills’s insured deposits placed with the bank, the FDIC will mail customers checks next week. Brokered deposits will be paid directly to the brokers after the FDIC receives the necessary documents. Of the bank’s $1 billion in deposits, about $179,000 are uninsured.

U.S. Bancorp, which last year bought assets and deposits of failed California thrift Downey Financial Corp., is assuming First Bank of Idaho’s deposits, excluding $112.8 million in brokered deposits. U.S. Bank agreed to buy $17.8 million of the failed bank’s assets, or less than 4 percent.

The toll of failed banks last year was the most since 1993, including Washington Mutual Inc., the biggest U.S. bank failure in history. The closings drained money from the FDIC deposit insurance fund, which tumbled 45 percent in the fourth quarter to $18.9 billion. The agency has estimated future bank failures may cost the deposit insurance fund $65 billion through 2013.

“We are past the crisis stage; I think we’re in the cleanup stage now,” FDIC Chairman Sheila Bair said yesterday at a conference in Washington. “It’s going to take some time and everybody needs to be patient, and it is not going to be pretty.”

Assessment Fee
To protect FDIC reserves, the agency is forcing the banking industry to pay a one-time, emergency fee. Bair is asking Congress to expand the agency’s borrowing authority from the U.S. Treasury to $100 billion from $30 billion, which may allow the assessment to be reduced.

Community banks have said the fee may significantly reduce 2009 earnings. The FDIC received more than 1,675 public comments on the emergency assessment. Bair said the agency expects to make a final decision on the fees by late May.

The banking industry lost $32.1 billion from October through December, the first aggregate quarterly loss since 1990. The agency classified 252 banks as “problem” in the fourth quarter, a 47 percent jump from the third quarter. The FDIC doesn’t identify problem banks by name.

The FDIC insures deposits of up to $250,000 per customer at 8,305 institutions with $13.9 trillion in assets.

““We are past the crisis stage; I think we’re in the cleanup stage now,” FDIC Chairman Sheila Bair said…”

Ah, okay Sheila, whatever you say. You’ll have to excuse me if I just happen to mention that I think you’ll full of it!

Three Dog Night – Liar:

Friday, April 24, 2009

Durable Goods and Global Trade - Going to the Charts…

More green shoots… that’s it, take in some of those green shoots and hold it in… hold it, hold it… ah, very good young Jedi Market Warrior. Hey, please don’t Bogart that weed, my friends. Let Yoda have some of that! LOL, it certainly is interesting to watch the market psychology change. Right now it’s breathing in a big sigh of relief because apparently the free fall in the economy has slowed. Just remember that it’s not the fall that hurts, it’s the landing.

This morning the durable goods orders for March came in with a .8% drop which was less than expected, but obviously still negative. Here’s what Bloomberg had to say:
Orders for U.S. Durable Goods Fall Less Than Forecast

By Shobhana Chandra

April 24 (Bloomberg) -- Orders for U.S.-made durable goods fell less than forecast in March, adding to signs the economic slump is easing.

The 0.8 percent decrease reported by the Commerce Department today in Washington compares with an anticipated 1.5 percent drop, according to the median of 68 estimates in a Bloomberg News survey of economists. The news was tempered by revisions to February figures that showed a 2.1 percent gain in orders, smaller than the government previously reported.

Economists project any economic recovery in the second half of the year may be muted as government measures to revive growth will take time to gain traction. General Motors Corp. is planning on idling 13 plants for multiple weeks from May through July, and other companies may keep cutting spending and slash jobs until demand here and abroad shows sustained gains.

“While there’s a little bit of weakness in the report, there are encouraging signs in the details,” said Zach Pandl, an economist at Nomura Securities International in New York, who had forecast durables orders would drop 0.7 percent. “I don’t think an investment-led recovery is very likely at this point, though there are signs the contraction in business spending is slowing.”
February’s Gain
The February gain in orders was revised lower from a previously reported 3.5 percent. Estimates for March ranged from a decline of 4.9 percent to a gain of 1 percent.

Excluding transportation equipment, orders fell 0.6 percent, also less than anticipated, after a 2 percent gain in February that was smaller than previously estimated.

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, climbed 1.5 percent after a 4.3 percent gain the prior month that was also smaller than previously estimated. Shipments of those items, used in calculating gross domestic product, dropped 1.7 percent after a 0.1 percent increase in February. The slump may prompt some economists to lower forecasts for first-quarter GDP.

Orders excluding defense equipment decreased 0.6 percent and bookings for military gear dropped 14 percent.

Transportation Equipment
Orders for transportation equipment declined 1.4, led by a 1.7 percent drop among autos. Demand for commercial aircraft, often a volatile category, increased 4.4 percent after plunging 32 percent the prior month.

Orders for computers and machinery decreased following gains in February, while bookings for electrical equipment rose, today’s report showed.

Eaton Corp., a Cleveland-based maker of circuit breakers and fuel pumps, this week posted a first-quarter loss and cut its 2009 profit forecast as sales sagged.

Export Demand
Overseas demand also is sliding. The global recession will be deeper and the recovery slower than previously thought as financial markets take longer to stabilize, according to a forecast by the International Monetary Fund this week. The world economy will shrink 1.3 percent this year, the lender said.

Still, the “sharp decline” in the U.S. economy may be slowing, Federal Reserve Chairman Ben S. Bernanke said this month. President Barack Obama cited signs of progress while warning that 2009 “will continue to be a difficult year.”

General Electric Co., whose businesses span power-plant turbines, jet engines and private-label credit cards, said the outlook is looking less dire.

“While the economy is still difficult, we are starting to firm,” Chief Executive Officer Jeffrey Immelt said in an April 20 interview with company-owned CNBC. “We are starting to see, I think, some signs that businesses are ready to invest again.”

Boy, those are some serious binoculars they are using to look for signs. What sign, exactly, is Immelt seeing? Is it his hunch? I prefer to look at the data… let’s go to the charts, but before I do, let me address a couple of points about the charts. First of all, it is true that these charts are HISTORY indicators showing us what has already happened. Still, my point would be that one should not construe a leveling out or a bounce to be a change of trend. Once markets have fallen a large percent, the math is deceiving. For example, when an indicator such as the Baltic Dry Shipping Index falls 90+%, it can then bounce 50% off the bottom and that only recovers 5% of its previous value. Hardly the stuff to get excited over. It’s simple math, please keep it in mind.

The second thing to keep in mind about these charts is that I can’t always get a common value on the vertical axis as they come from the Fed and they do not present all their data in the same manner, so it’s important to look at that vertical axis. Sometimes you are looking at percent change, sometimes the change in a raw dollar figures. Spend some time with each and don’t move too quickly.

The last thing to keep in mind is that most of these economic charts have experienced parabolic growth. When you look at the raw data, it may appear that a blip is occurring on the top of a chart, but when you look at the rate of change you see a completely different picture. Growth is important, so when you compare year over year figures, seeing the rate of change go negative is telling you about growth or lack thereof.

Durable Goods are a good example of the differences in charts. What are durable goods? Let’s turn to the “Investor’s Dictionary” for help:
“A durable good, or a hard good is an economics term for a good which does not quickly wear out, or more specifically; it yields services or utility over time rather than being completely used up when used once. Most goods are therefore durable goods to a certain degree. Perfectly durable goods never wear out.

Examples of durable goods include: Cars. Appliances, Business Equipment, Electronic Equipment, Home Furnishings & Fixtures, Housewares & Accessories, Photographic Equipment & Supplies, Recreational Goods, Sporting Goods, Toys & Games”
Now let’s look at the Durable Goods raw data by viewing the total Durable Goods Orders expressed in millions of dollars:

That’s actually a tremendous drop, but if you look reaaaal closely, you’ll see a little curl up at the end. Is that THE economic corner? I think I’ll wait a while longer to make that determination, how about you? Note that the low on that chart is pretty close to the point that the economy did bottom in 2002.

Now, let’s look at the same data, but we’ll examine it in Year-over-Year (YoY) PERCENT CHANGE:

Boy, it’s falling at a rate of 25% a year?! Yikes. That’s some serious momentum to overcome.

Now let’s look at the INDEX for Industrial Production. This is an index value, but you can see that the rate of decline is much higher than at any point since the chat began in the mid ‘40s:

Here’s the index for Industrial Production of consumer durable goods presented in change of index value, YoY. When presented in this manner, you can see that the Index change is clearly greater than at any time in the past CENTURY:

However, when presented in percentage terms, it is not the greatest Percentage rate of change, but it is since the mid ‘70s:

That’s a good lesson in presenting the data differently. Once something has grown in a parabolic fashion, the descent on the back side of the curve can be precipitous. Which chart above most accurately portrays what’s happening, the greatest index change in history, or one of the largest percentage changes? Well, a large percentage change of a huge number means that very large chunks are falling off production all at once. I would argue that the amount of production decline is, in fact, the largest in the past century.

So, those charts show what’s happening to production and Durable Goods inside of the United States. Now let’s take a look at trade between the U.S. and other parts of the world…

One indirect measurement of trade is the Baltic Dry Shipping Index. This index tracks dry bulk goods, the raw materials of manufacturing. Transportation is generally considered to be a leading indicator, and this one in particular because raw materials take a while to pass through the manufacturing process before they can be sold and counted among the durable goods. The blue line in the chart below is the index value and the other two are moving averages. This index plunged more than 91%, a true parabolic collapse (note the collapse took it back to area before the parabolic move began). It then bounced from the 1,000 area to 1,800, AN 80% MOVE! WOW, THAT’S REALLY SOMETHING, until you consider that you recovered only 6.8% of what you just lost!

But it’s true that this chart very well may have seen its bottom. It’s rare for a 90+% parabolic collapse to collapse again. And let’s face it, expecting another collapse of that magnitude would be unrealistic. Does that mean that the rest of the economy has bottomed? Or does it mean that we have to lose 90% of our manufacturing first?

Okay, now let’s examine Imports and Exports; we’ll start with what’s coming IN first, IMPORTS:

Here’s a chart showing overall imports on a balance of payments basis expressed in percent change YoY:

That’s a very hefty 30+% decline, obviously of greater magnitude than during the last recession.

Now let’s look at Imports from individual countries… here are imports from Japan expressed in millions of dollars:

And here’s the same data expressed in CHANGE YoY in millions:

Here are IMPORTS from our other major trading partners again presented in millions of dollars change YoY:





Now let’s look at EXPORTS, starting with the balance of payments in MILLIONS:

Here’s the export data (non-balance of payments form) presented in YoY change in BILLIONS:

And here are our exports to the same trading partners expressed in millions of dollars change YoY:






As you can see, Industrial Production, Durable Goods, Dry Shipping, and Imports and Exports are experiences collapses on a scale that has not been seen in our “modern” economy.

I’m not saying that this is the end of the world, what I’m saying is that the data doesn’t paint a picture of an economy that’s bottoming. What I see is an economy that is slowing very rapidly and not likely to just turn on a dime and springboard to new and ever greater heights at this point in time.

If you’re buying into this rally, you’re betting that these trends have reversed BEFORE the data says they have. Oh yeah, the markets lead… just like they always do in bear markets. They lead the sheep to the wolves who proceed to fleece. So, take another big toke of those green shoots, Jedi Market Warrior. These trade charts prove that there’s a hole in the world…

Eagles – Hole in the World:

Mike Larson - The Fed: Our Next Troubled Bank?

Mike’s one of my favorite analysts, he works for Martin Weiss at Money and Markets. He’s been consistently correct since Martin hired him several years ago and I’ve followed him from his first day.

He has indeed been correct about housing, the banks, CRE, all of it. And he hasn’t been shy about saying what he thinks, which makes Mike a TRUTH TELLER.

While many people believe they are economic truth tellers, few see the roots of the problems and can verbalize then correctly. In this article Mike sees trouble ahead for our Fed and our nation’s creditworthiness. He, of course, is correct:
The Fed: Our Next Troubled Bank?

by Mike Larson

The Federal Reserve is watching the backs of U.S. banks. But sometimes I wonder, "Who's watching the Fed's back? Is the Fed our next troubled bank?"

You see, all of this garbage paper that's going bad — the troubled residential mortgage backed securities (RMBS), the commercial mortgage backed securities (CMBS), the asset backed securities (ABS), the Fannie Mae bonds, the corporate loans, and so on — hasn't just gone "Poof."

Instead, more and more of it has been landing on the Fed's doorstep — either through direct ownership or as collateral against Fed loans that keep getting rolled over.
The result? The Fed's once pristine balance sheet is starting to look more and more like the balance sheet of a troubled financial institution.

From AAA to
Something Else Entirely

What do I mean? Well, take a look at this April 26, 2007, Federal Reserve Statistical Release. Table 2, the Consolidated Statement of Condition of All Federal Reserve Banks, shows the breakdown of the Fed's assets back then.

You'll see that the Fed banks listed total assets of $883.5 billion at the time. The lion's share of those assets — $787.1 billion, or 89 percent — were "AAA" quality U.S. Treasury bills, notes, and bonds. There were a few other assorted line items (gold, bank premises, etc.) ... but that's about it.

Now compare that two-year old balance sheet, to this multi-headed hydra of a balance sheet that came out a few days ago. The equivalent table (number 9) shows that total Fed assets have exploded to $2.19 TRILLION. And those plain-vanilla, risk-free Treasuries? They make up just $526.1 billion, or 24 percent, of Fed assets!

The Fed now also owns more than $355 billion of mortgage backed securities and $61 billion in debt issued by Fannie Mae, Freddie Mac, and Ginnie Mae. Term auction credit comes to $455.8 billion. Those are short-term loans against just about anything and everything — from auto loans and credit card receivables to Brady Bonds and CMBS.

The Fed is also holding $238 billion in commercial paper as part of an October 2008 program to help corporations fund short-term debt obligations. And it has $111 billion in so-called "other loans." This all-purpose category includes loans made to primary dealers ($12.9 billion), bailout baby AIG ($45.1 billion), and loans made as part of the Fed's Term Asset-Backed Securities Loan Facility ($5.1 billion).

Finally, the Fed has lent money to so-called "Maiden Lane" LLCs that acquired dodgy asset portfolios as part of the Bear Stearns and AIG bailouts. The grand total there comes to $72 billion.

Bottom line:

- The quality of the balance sheet of the U.S. central bank is deteriorating.
The Fed is now heavily burdened by the same kind of crappy paper that has been hammering private U.S. banks for several quarters.

- The Fed is now heavily burdened by the same kind of crappy paper that has been hammering private U.S. banks for several quarters.

- And the Fed banks are holding total capital of just $45.7 billion against the sum total of $2.19 trillion in assets, meaning the Fed is leveraging its capital 48-to-1. That compares to only 27-to-1 two years ago.
What's the Risk?

With the Fed doing its best to tarnish its balance sheet and the Treasury borrowing like crazy (not to mention the Fed monetizing some of that debt), the natural question becomes: "What's the risk?"

The answer is that it all comes down to the reaction of the capital markets...

- Do investors continue to aggressively bid on U.S. Treasuries at our debt auctions?

- Do foreign creditors, who hold more than 53 percent of the privately held Treasury debt outstanding, start balking at supporting our profligacy?

- Does the U.S.'s AAA credit rating come under closer scrutiny?

- And does the dollar start to reflect the fact that the Fed is throwing money around like a drunken sailor — and taking on any and all kinds of crummy assets?
These questions likely won't be answered today, tomorrow, or next week. We may not learn for months or even quarters. But that doesn't mean we shouldn't discuss these risks now ... that those risks aren't very real ... and that you don't want to start taking some protective steps now.

I warned about an impending blow up in residential real estate in 2005. If you sold housing, construction, and mortgage stocks back then, you dodged the worst meltdown in modern history. I warned that commercial real estate was in big trouble in early 2007. If you sold your REITs then, you dodged the biggest crack up in office, industrial, and retail real estate shares in ages.

Now, I recommend you consider buying some gold and dump the heck out of any long-term U.S. bonds. Because some day, the trashing of the Fed's balance sheet is going to matter, and in a potentially huge way.

Until next time,


Some day, indeed. Today TLT is poking through support and the dollar is breaking down below trendline as well. Sooner or later the math catches up to you, that time is approaching rapidly.

New Home Sales…


Just read the headlines… Here’s one from Bloomberg:

“Sales of U.S. New Houses in March Were Higher Than Forecast in Sign Market is Stabilizing”

…and here’s one from CNN:

“New home sales show signs of revival”

The birds are chirping, the flowers are blooming, and the birds and bees are doing their thing. Life is glorious, did you see American Idol last night, that kid with the makeup and orange hair sure screamed well, he was way less screechy than that spoiled little girl with the big bosoms... and, oh, did you catch Survivor? Whoa, that dude sure kicked butt in the immunity challenge!

And now Nate gets to bring everyone back to earth, always a hit at parties, you can count on him to bring a good dose of reality that’s sure to melt a smile.

Seriously, I’m a very happy guy, especially when I’m riding my motorcycle, but I just don’t get the fluff. I like springtime, it’s terrific. It is the time people are out shopping for a place to nest, just like the birds. And thus we would expect home sales to INCREASE IN THE SPRING. But guess what? That’s NOT what happened.

Econoday - Housing data have been mixed at best but put new home sales on the high end of the list. New home sales slipped a very slight 0.6 percent in March to a higher-than-expected annual unit sales rate of 356,000. Importantly, data for February and January were both revised higher by a total of 30,000. The biggest recovery is in the West adding to indications that the center of weakness is strengthening. Total supply on the market eased to 10.7 months vs. January's 12.5 months at what may have been the absolute deepest part of the housing slump. Prices are showing life, slipping to median a $201,400 for a 12.2 percent year-on-year contraction that's an improvement from February's 15 percent contraction. At a 10.3 percent rate of contraction, the average price of $258,000 is doing better, perhaps reflecting a higher share of non-discount sales that is likely combined with further deterioration in low end prices. This report doesn't offer great news on the housing sector but it's not bad. Stocks and the dollar rose in reaction to the report while money moved of the Treasury market.

Sales revised up for the first two months of the year? Not enough to matter, the key here is that sales in March were DOWN from February when March is a traditionally a stronger month and it’s a longer month as well.

Here’s Econoday’s chart showing sales against interest rates:

Uh, there's a pretty clear trend in place, and frankly I don't see that trend broken on that chart. Beginning to level out? Maybe, but even if so, that does not equate to economic revival. And home builders counting on an upturn had better be equipped with very low expenses and enough cash to weather a very long cycle.

In their notes with the chart they say, “There is no question that lower interest rates boost home sales.” Okay, interest rates have been going down all last year and hit ZERO, as in as low as the FED can make them since December of last year. Yet, both new and existing home sales have been plummeting.

Sales of U.S. New Houses in March Were Higher Than Forecast

By Bob Willis

April 24 (Bloomberg) -- Purchases of new homes in the U.S. last month were higher than anticipated, providing further evidence the market may be stabilizing.

Sales decreased 0.6 percent to an annual pace of 356,000 after a 358,000 rate in February that was stronger than previously estimated, the Commerce Department said today in Washington. The median sales price decreased 12 percent from March 2008, while inventories of unsold homes fell to a seven- year low.

Federal Reserve efforts to bring mortgage rates down combined with tax credits for first-time buyers are likely to support sales in coming months. Still, the highest jobless rate in a quarter century, tight credit and record foreclosures indicate purchases won't rebound substantially.

``Through the ups and downs, sales have been close to flat in recent months,'' James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report. ``We expect sales to start trending up again in coming months.''

Economists forecast new home sales would be unchanged at a 337,000 annual pace, according to the median estimate in a Bloomberg survey of 68 economists. Forecasts ranged from 310,000 to 375,000.

The median price of a new home decreased to $201,400, the lowest level since December 2003.

Annual Decline
Sales of new homes were down 31 percent from March 2008. They reached a record 1.389 million in July 2005.

The 5.2 percent decrease in inventories exceeded the decline in sales. The number of homes for sale fell to a seasonally adjusted 311,000, the fewest since January 2002, and the supply of homes at the current sales rate dropped to 10.7 months' worth, the lowest level in eight months.

Sales in March were led by a 15 percent surge in the West. Purchases plunged 32 percent in the Northeast. They were also down in the Midwest and were little changed in the South.

A report from the National Association of Realtors yesterday showed purchases of existing homes in March fell 3 percent to an annual rate of 4.57 million. The median price slumped 12 percent from a year earlier, and distressed properties accounted for about 50 percent of all sales.

Record Foreclosures
Mounting foreclosures have drawn more buyers to the existing- home market. New-home sales now make up about 7 percent of the total market, down from about 16 percent at the peak of the housing bubble in mid-2005.

Other indicators are showing signs of a bottoming in housing. Homebuilder confidence has risen from a record low in January to a six-month high in April. Mortgage applications to purchase homes are also up after reaching a nine-year low in February as the Federal Reserve drove down lending rates.

Still, analysts project an economy that has hemorrhaged 5.1 million jobs since December 2007 and consumer confidence near record lows means sales are likely to stabilize rather than rebound.

The money statement here is that sales in March are down 31% from March of last year. If that’s not economic cliff diving, I don’t know what is. Again, sales down month to month in the Spring is amazingly bearish, not birds and beeish.

And while inventories are at a seven year low, in terms of month of inventory it is still at historic high territory. New home manufacturing should be low, that’s how inventory can get worked off.

My take, though, is that there is way more inventory than the existing data shows. First, the banks are holding inventory and so there is pent up supply there. The larger pent up supply, in my opinion, is of people who would like to sell their home but don’t have it listed for sale because they are waiting for prices to rebound (foolishly), or they had their home listed and pulled it from the market or are RENTING out a home they otherwise would have preferred to sell. This is especially true in the middle to upper middle homes.

What is it, exactly, that would lead analysts to make statements like they believe sales are going to begin picking up? Its spring and they are still falling. What happens when we get past spring? I believe in freedom of speech, but I have to tell you that this type of “analysis” should be outlawed, and that’s all you’ll hear from all the people who have an interest in pumping up the market, from the homebuilders, to their NAR lobby, to the bankers, to the media who also profit from selling ads to the aforementioned. What a system, there’s no one in it to protect you and that includes your government who receives their campaign money from the same corporations.

Can’t we cut the crap?

"Hey man, don't bring me down!"

The Animals – Don’t Bring Me Down (1966):

Morning Update 4/24

Good Morning,

Well, evidently the market thinks it was priced for Armageddon because companies like Ford, who ONLY lost $1.4 BILLION (!!) in the last quarter beat expectations and said they are on the road to recovery – stock up 27%! Yes sir, that’s tremendous progress right there, heck, at that rate they might even stay in business a few weeks longer.

Then there’s American Express… profits ONLY FELL BY 56%! That’s good enough to send the stock up more than 12%. Yes sir, that’s a beat, one hell of a performance and goes to show that everyone should be buying stocks.

Seriously though, people may have been expecting instant disintegration, but the rate of fall was so fast that maintaining that rate was mathematically impossible, so of course the rate at which things are falling slows at some point. That doesn’t mean that things are imminently better. And that feels better, it gives hope, and that’s part of the psychology and bear market rallies.

At any rate, the futures are up some this morning, once again the market turning upwards late at night:

The 10 minute stochastic has a little room to run higher before it’s overbought, the 30 minute fast is already overbought, but the slow has room, and so we may see a move higher that could be followed by a move lower later. That would fit the trendlines of the tentative triangle I have drawn, as you can see a run over that upper trendline, say above 857 would be bullish and the /ES is almost there already. If you’re short, then holding past there may mean taking a chance and riding it up to the 862 area, or even higher:

Durable goods orders were down .8% which again was better than expected. But once again revision games come into play with February’s gain whittled down substantially. Also note that March’s negative performance comes on the heals of February’s positive one, again showing that one month’s data doesn’t make a trend. And, year-over-year, durable goods orders were down a stunning 25.2%! That’s huge and it truly is economic cliff diving. Here’s Econoday’s report:
Durable goods orders in March declined less than expected but February's sharp gains were whittled down substantially in revisions. Durable goods orders fell back 0.8 percent in March, following a 2.1 percent rebound in February. The prior month's increase originally had been estimated at 3.5 percent. However, the drop in March was not as severe as the market forecast for a 1.8 percent fall. Excluding the transportation component, new orders decreased 0.6 percent, after advancing 2.0 percent in February.

Weakness in new orders was widespread in the latest month but was led by communication equipment, down 8.1 percent, and primary metals, down 3.2 percent. The only major industry group to post a gain was electrical equipment & appliances which rebounded 1.8 percent.

By special category, nondefense capital goods rose for the second consecutive month, increasing 1.9 percent in March after a 4.9 percent boost the prior month. But these orders are still recovering from January's sharp 9.9 percent plunge.

Year-on-year, overall new orders for durable goods slipped to down 25.2 percent in March from down 24.8 percent in February. Excluding transportation, new durables orders declined to down 20.3 percent from down 18.3 percent the prior month.

The latest durables report showed a partial pullback in durables orders but over the past two months there has been a net gain. Overall, the numbers indicate that contraction in manufacturing may be slowing – which still is good news. The "may" part has to be heavily considered since durables orders are notoriously volatile. Also, we certainly will have to pay more attention over the next few months to ex-transportation since auto manufacturers are shutting down some assembly lines due to weak sales and high inventories.

That’s about it, market’s opening right now and breaking above that trendline, so be careful playing today, but have fun.


Thursday, April 23, 2009

End of Day 4/23 – Because you’ve got to pick a pocket or two!

One bombshell after another… We learn that of the program trading which accounts for more than 30% of all trading on the NYSE, Goldman performed more than twice the next lower program trading firm and that they solely were responsible for nearly 25% of all program trading.

If that doesn’t tell you who controls the markets, I don’t know what does. If there is a PPT surrogate, there it is, right there. Goldman, and all the large Primary Dealers need to be broken up if we ever want any hope of having free markets again.

This is a room filled with lowly “retail” stock market participants like you…

Today the DOW closed up 71 points, the S&P finished up 1%, the NDX finished up .7%, and the RUT diverged by finishing down .9%.

The CMBX indices did turn up slightly today and internally the advancing issues were about 3 to 2 over declining and 64% of the volume was up on the NYSE. The XLF gained 4.7%, IYR gained 4.2%, the dollar was lower, gold was higher, and the VIX lost 2.5%.

The data today was mostly all bad – it’s good, don’t you know, that the market holds up in the face of bad news! New home sales worse, prices down, inventory supply up; Unemployment claims up, continuing claims at a new all time record; Possible prepackaged bankruptcy for Chrysler as early as next week, and Ken Lewis told by Bernanke and Paulson to keep his big banker mouth zipped about Merrill Lynch. All in all, a rational time to invest in stocks, especially if you are eating the leftover gruel shoveled out by Goldman. I think I’d be a little less like Oliver, and a little more like Stewie:

But hey, American Express beat after the bell and so everything is roses, even if AMZN, MSFT, and AMGN aren’t so hot.

Here’s a ten day of the SPX. We’re still inside of the channel I drew yesterday and the upper boundary combined with the new lower boundary makes a pretty good symmetrical triangle. If that’s what happening, it’s difficult to tell which direction it should break. It could be a wave 2 triangle, or it could be bullish… I don’t know what game GS is going to decide to play? Do you? If I'm counting EW from the top, this still looks like it could be wave 2 of 3. All the short term stochastics are in the middle. This entire run over the past six weeks is starting to look like a rounded top formation, although it still could break either way. I think there’s probably a good play on this triangle no matter which way it breaks, just use stops in case of the ever popular trendline head fake. I’m still leaning bearish, but won’t hold short on a break above that upper trendline (Are you listening GS? A headfake will toss me out of my position and THEN you can press the sell program):

On the SPY you can see we have opposing hammers on just about flat volume. The movement usually favors the shaft of the second hammer, meaning I would expect lower, which again means that GS will take the market higher, then lower:

Same story on the DOW, a hammer just beneath the 100dma. Check out the volume pattern… starting to fall off there:

The NDX produced a nasty black hanging man doji (oh, that reminds me, where’s Paulson?), that is normally a top indication. The volume on the Q’s is actually increasing on the move up. There will have to be a gap lower at the open to confirm that as a reversal indicator, of course at Goldman’s discretion:

Same story on the RUT, except the small caps were lower today and they often lead. This is saying to me that the breadth of the market is not as good as it would appear on the surface as the run higher is primarily in the big names like AAPL (as dictated by you-know-who):

Despite rising natural gas and oil inventories tied to falling demand, oil and USO rose on the day. Here’s a USO daily chart showing a rise in prices the past three days on falling volume and a topping hammer candlestick just below the 50dma. I would not want to be long oil tonight, of course that hammer will need reversal confirmation by a move lower tomorrow, or as dictated by the commodity manipulator du jour, probably GS or MS, possibly with a twist of BS from BB:

So, in summary, like every day that the debt isn’t cleared and obscuration reigns supreme I think that tomorrow should be a down day. That’s on a fundamental basis of course. Then there are the THREE other factors to consider in the market besides the fundamentals: the psychological, the technicals, and the will of Goldman Sachs. Perhaps if we’re all nice little children and cooperate by shoveling our money at them on the long side, they will give a little porridge to keep our bellies warm for another day (before they pull the rug out from under those who they just distributed to):

Oliver! - Food, Glorious Food:

Hey, if you work at a major brokerage house you know you have to pick a pocket or two if you’re going to earn your bonus and distribute those shares, or the latest in derivative products, to the teacher’s retirement fund!

Oliver! - You've Got To Pick A Pocket Or two